Reducing Your Risk

“How can I reduce my risk?” – Bruce of Seattle, WA

Interestingly enough one of the best ways to reduce your risk is to lower your leverage. The less you borrow the less risk you have. Real estate investing can be a very profitable venture but we are susceptible to the real estate market on how we are going to make money. The real estate market has short periods of stability and typically operates on a ten year cycle. Depending on the market, there are times when it is safe to lever more and there are times where it is safe to lever less. Another method of reducing risk is to have capital reserves. If there is an adjustment in the market, with a capital reserve, you are in a better position to to preserve the capital that you do have invested in the market. Some unforeseen circumstances could include an investment property not selling as quickly as planned, extra repair work that wasn’t included in the original bid, extra vacancies in rental units, etc.